NotesECN741-page8 - ECN 741: Public Economics Fall 2008...

ECN 741: Public Economics Fall 2008 Note that in this case φ = 1 (independent of prices). Take derivative w.r.t p i U ii ∂c i ∂p i = φ = U i p i and H i = 1 ± i Result 2 If preferences are additive separable and quasi-linear, price-inelastic goods should be taxed more. 1.2.3 Complementarity with leisure Sandmo ( 1987 ) and Corlett and Hauge ( 1953-54 ) argue that goods that are more complement with leisure should be taxed more heavily. The next example shows this Example : U ( c 1 ,c 2 ,l ) = c α 1 + c α 2 (1-l ) β 1.3 Uniform commodity taxation One of the most useful and interesting result in optimal taxation is the uniform commodity

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